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The Real Reason Amazon Bought Whole Foods

The Real Reason Amazon Bought Whole Foods

In America we have seen many retail stores closing down lately.  I thought it was strange when Amazon would buy a retail store front like Whole Foods when they have been so successful at putting retail stores out of business because of their efficient business model.

I read an article recently that stated that Amazon was part of a pilot program with a few other grocers that will allow for online food delivery using the EBT program.  If you are not familiar with this, it is the welfare program that allows people to buy food and essential goods with a government subsidy.  It is paid monthly to those who qualify.

Welfare Money

There are many arguments about how much money the US government actually spends on welfare.  The Washington Post wrote this article in January 2014 putting the figure of welfare at $75 billion dollars for the EBT benefit:

welfare programs

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The buying of whole foods makes sense when you realize that Amazon was part of the EBT pilot program to take care of the problem of food deserts.  Also remember that Amazon recently gave a discount to people holding the EBT card.  This will give Amazon 400 stores to distribute items that are eligible to purchased through the EBT card.  The delivery fee and premium cost Amazon can make from this is enough to make a retail store profitable in today’s market.

EBT Discount for Prime

so what was the EBT discount for Prime then?  This was a way for Amazon to identify who held the EBT card and start marketing directly to these people.  When the pilot is successful, Amazon will already have a database filled with customer information.  Customers on welfare.  The pilot lasts for two years, for more on the pilot that Amazon is currently in read this story:

Amazon in Pilot Program

The deal with Amazon will most likely take years for the transition to be complete.   At this time, the pilot will be over and the government will need to decide if the EBT card can continue to be used online.  

samall business

Amazon will take away the high cost of Prime Fresh when this rolls out.  The food items will most likely come with a higher price tag when purchasing it online like most other companies like instacart currently do.  I have seen some items on Instacart that are 30% higher than the list price.

Spinning the positives

Amazon will take this opportunity to spin the program in a positive light.  This program was made for the mother who has three kids and has to drag all of them to the store just to buy $40 in groceries.  Amazon accepting EBT allows for people without cars to get food delivered that would spoil on the walk home.  With 400 stores, this will open up a $75 billion dollar market just in government money.  

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This doesn’t include the other things they can do with the stores like run same day distribution out of it.  Amazon may not even need to modernize the Whole Foods stores for this to be profitable. If they just raise the prices online and the government allows the EBT cards to be used online, then it can be profitable.

Meant to be Good

I know the welfare program was meant to be good.  It does help some families there is no doubt.  There is a number of people who abuse the system however.  I have been in line at gas stations where a young 20 something person is in front of me getting a gallon of ice cream, pastries, and other crap.  Things you wouldn’t think to buy at a gas station because the premium on them is astronomical.  Then you see them pull out the EBT card. This is when you realize they obviously don’t value money because someone else is paying for those items.

This is the beauty of the Amazon plan because they can charge premiums online. Some people paying with EBT won’t care.  The Ice Cream and pastries are being delivered on someone else’s dime.   What do they care how much it costs?  If Amazon can take 20 % of the EBT money only that is $15 billion dollars a year.  

Now the $13.7 Billion dollar price tag of Whole Foods seems like a deal right?  

What do you think about this?

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Let me know your thoughts, and share this with anyone who will find this interesting!

Small business blog

I wanted to take some time out from the normal posts on this small business blog to write this article.  The next article will continue the Facebook Ad series.  Thank you for reading and subscribing.

 

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